My Chinese dangerous move: from FXI to GCH, from old to new China. March 30, 2006Posted by deminvest in etf, funds, investment.
Just a few days ago I told you that we can be at the same time proletarians home and capitalists in China. Well as I wrote that, I bought the largest and most common ETF for China it is called iShares FTSE Xinhua China 25, better known by its ticker: FXI.
Only two weeks later (and a hefty 4% gain) I decided to switch on a smaller, much riskier but extremely interesting pick: Greater China Fund Inc. ticker: GCH.
I did that because FXI seems the past of China and GCH the future. Also, to be honest, you all know my worker's weakness: I love dividends because they come to me without having to work. Well GCH yields 6 % cash!
Let's go back for a second to FXI. What's wrong with FXI? This fund, its boosters say, is a great way for small investors to get broad exposure to China with one simple, low-cost trade. I can't argue with FXI's cost or simplicity. And since FXI has risen nearly 20% year-to-date, I can't argue with its performance. But there is a but… Please take a look on http://www.ishares.com . There you will find the 20 companies that are part of that fund. Now use Google to find each one of them.
You will find state owned banks, loaded with bad debt because of their well known habit of lending big money to friends of Chinese politicians… You will find oil companies which are benefiting of high oil prices, but are still huge bad managed government owned giants. You will find a great telecom, which will definitely benefit of the fastest growing cell phone market, but still relies mainly on old-fashioned landline companies, which are not a safe beach in Skype's times.
CGH is free to invest and choose the best Chinese companies. Of course their job brings costs that we, the people, must pay. But, since I am not able to figure out how good a Chinese company is, I don't mind paying someone to avoid picking shares of a Shanghai bank overloaded with bad debt, just because it is bigger and is part of the index of 25 biggest Chinese banks.